Coronavirus Places Certain Industries at Serious Risk of Bankruptcy

Some of the first industry casualties are expected to include:

Airlines. The epidemic has been threatening to devastate airlines for several weeks now, as travel restrictions expand and passengers display an increasing desire to avoid crowds and confined spaces. On March 12, 2020, troubled British airline Flybe was the first to file for bankruptcy, explicitly citing European travel restrictions implemented as a result of the spread of COVID-19 as a contributing factor. On March 12, 2020, the International Air Transport Association (IATA) warned that revenue losses in the airline business could run as high as $113 billion this year.

Cruise Lines. Cruise lines have been besieged for weeks by reports of the coronavirus spreading between passengers trapped on ships that have been refused docking privileges in foreign ports.  On March 2, 2020, Japanese cruise ship operator Luminous Cruising filed for bankruptcy protection, blaming customer cancellations that were triggered by reports of the deadly contagion spreading on other cruise lines.

Manufacturing. Supply chain disruptions are expected to cause numerous financial challenges for both suppliers and their customers alike.  On February 9, 2020, Valeritas Holdings, Inc., a commercial-stage medical technology company focused on the development and commercialization of technologies to treat patients with diabetes, filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. Valeritas specifically cited the worsening coronavirus epidemic and its impact on the workforce of the company’s primary manufacturer—located in China—in its filing.

Hospitality. Although no major hospitality providers have filed for bankruptcy protection as of the date of publication, hoteliers face a substantial threat from the continued spread of COVID-19.  In New York City alone, revenue per available room is down as much as seventy percent (70%) at some hotels; before the coronavirus outbreak, one-third of overseas visitors to the Big Apple came from European countries, who now face travel bans imposed by both their home countries and the United States.

Retail. The threat COVID-19 presents to retailers—already challenged by changes in consumer behavior—is undeniable.  Retailers with a brick-and-mortar presence now face substantial measures to physically contain the spread of the virus, including non-essential business lockdown orders and social distancing directives.  Retailers already beset by insufficient liquidity and unsustainable long-term capital structures will be especially vulnerable.  A dramatic fall in discretionary spending is also likely to substantially impact retailers over the next several months.

With COVID-19 exposing vulnerabilities in so many industries, companies must stay vigilant in following both their credits and understanding the continuing operations of their clients.

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.

Author Corinne Brennan is a partner in the Bankruptcy & Restructuring Department at Klehr Harrison.